Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/150087
Authors: 
Abraham, Arpad
Carceles-Poveda, Eva
Year of Publication: 
2006
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 1 [Year:] 2006 [Issue:] 4 [Pages:] 439-459
Abstract: 
Alvarez and Jermann (2000) show that the constrained efficient allocations of endowment economies with imperfect risk sharing due to limited commitment can be decentralized as competitive equilibria with endogenous debt constraints that are not too tight. These are the loosest possible borrowing limits that do not allow for default in equilibrium. However, such a decentralization is not possible in the presence of capital accumulation, since changes in the aggregate capital also affect the incentives to default. In a model with endogenous production, aggregate risk, and competitive intermediaries, we show that a decentralization with endogenous debt constraints is possible if one also imposes an upper limit on the intermediaries’ capital holdings.
Subjects: 
Complete markets
enforcement constraints
intermediation
JEL: 
E44
D52
G12
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/2.5
Document Type: 
Article

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